August 11, 2003

Workers Compensation and Lawsuits

Workers’ comp protects firms from lawsuits, but beware employees looking for loopholes

Whether or not someone is considered a contractor may cloud the issue

Most employers don’t have to worry about being sued by an injured employee. This is part of the historic trade-off of workers’ compensation schemes. But beware, injured employees may look for an opening that lets them sue, and whether or not someone is considered a contractor may cloud the issue.

In Ontario, the Workplace Safety and Insurance Act stipulates workers cannot sue their employers in civil court for injuries suffered in the course of employment. Other provinces have similar systems. Under this no-fault system, employers pay a form of insurance premium referred to as the workers’ compensation assessment. In exchange, employers are protected from lawsuits brought by injured employees. Employees trade the right to sue in civil court, with its expense and burden of proving employer negligence, and gain the right to receive compensation through workers’ compensation.

But is the person suing the employer a “worker” for the purposes of the act? The appeals tribunal will have to determine that an employment relationship exists before barring any civil action. Various factors will be examined, such as ownership of the equipment, whether compensation is fixed or variable and any evidence of an independent business. An independent contractor will not be barred from bringing a civil suit against the company with whom she contracts, but she will face a higher evidentiary burden than she would if she could claim workers’ compensation benefits.

It should be noted that some employees may not be covered by the workers’ compensation scheme. These may include casual employees and other exceptions. As well, not all employers are covered (organizations must be deemed as Schedule 1 as per Ontario’s act, and while this constitutes most workplaces, there are numerous exceptions in the legislation).

Uninsured workers maintain the right to sue the employer for work-related injuries. However, the circumstances under which they can bring a suit are limited by legislation.

An appeals tribunal must also determine whether the injury occurred in the course of employment. If an employee was involved in an accident while acting outside of the scope of employment, he will not be entitled to benefits under the act. However, he will maintain the right to sue his employer in a civil action.

Not only is an employer protected against suits brought by its own employees, it may be protected against suits brought by employees of other companies covered by the act. Under Ontario’s act, employees covered by the legislation are also barred from suing other employers and employees covered by the act. For example, Company A and Company B are both covered by the legislation. Employee C works for company A as a delivery person, and Employee D works for Company B as a delivery person. If C and D are involved in a car accident while on the job, C is barred from suing Company A, Company B and employee D.

Workplace injuries and accidents have a tendency to be considered in purely physical terms, but employees are increasingly suing their employers for psychological injuries and claiming damages for the intentional infliction of mental suffering. These claims frequently arise in the context of a wrongful dismissal suit. It may be argued that this amounts to a civil suit for a workplace injury — a right of action taken away by legislation.

In the leading case on wrongful dismissal and mental suffering, Wallace v. United Grain Growers [1997] 3 SCR 701, the employer did not raise a defence of a statutory bar to the action. While I know of no case in which this issue has been decided, it is open to an employer to apply to the appeals tribunal to determine if a civil action for the intentional infliction of mental suffering is barred by legislation.

Protecting your firm

The first line of defence against injury-related lawsuits is to make workplace health and safety a priority. While zero injuries is the goal, if an incident occurs and a lawsuit is pending, consider the following:

  • If your company is sued for damages arising out of a workplace injury, consider whether the suit may be barred by the workers’ compensation legislation. Injuries may include such things as stress and mental suffering.
  • Beware of uninsured employees. Limit the number of people employed on a casual basis. If possible, have all work outside of your core business performed by independent contractors.
  • Remember that if you succeed in having a civil suit barred, the employee is likely to apply for workers’ compensation benefits. While your company will not have to compensate the employee directly, the accident may result in increased workers’ compensation costs assessed against your firm.
  • In Ontario, if a tribunal determines a suit may proceed, the Workplace Safety and Insurance Act still provides some protection in the case of uninsured employees. Defend against such actions by showing that you operate a safe workplace and the injury was not a result of the negligence of the company or any employees, other than the plaintiff.

What the courts are saying…

  • Hughes was injured in a motor vehicle accident while working as a delivery person. The other driver was also acting in the course of employment when the accident occurred. Hughes brought an action against her employer, the insurer and the other driver. The insurer applied for a determination of whether the employee’s right of action was taken away by Ontario’s Workplace Safety and Insurance Act.

    Hughes claimed she was employed as an independent contractor and was not a “worker” within the meaning of the act. She was paid an hourly rate with no source deductions and no remittances made for coverage to the Workers’ Safety and Insurance Board. A tribunal went through the numerous factors characterizing an employment relationship and determined that the employee was a “worker” at the time of the accident and in the course of her employment. She owned none of the equipment used in the business, she was paid a fixed hourly wage and she bore no financial risk. Her right of action against the defendants was taken away.

    Hughes v. Algoma Mutual Insurance Co. (2002 ONWSIAT 2069, Decision No. 875 02).

  • MacDonald worked for a supermarket in a shopping plaza. She was proceeding to her car in the parking lot while on her paid break when she slipped and fell. Her claim for workers’ compensation benefits was denied on the basis that she was not in the course of employment when the accident occurred.

    MacDonald brought an action against Sun Life, the owner of the parking lot. Sun Life then brought a third-party claim against the company with which it contracted to clear the parking lot of snow and ice. The third party applied to determine whether MacDonald’s right of action had been taken away.

    A tribunal noted that a worker may be entitled to benefits if she is injured while on a break by ordinary hazards on the employer’s premises. However, the employee in this case was injured in a parking lot neither owned nor controlled by her employer. As such, the employee was not in the course of employment when the accident occurred. Her right of action was not taken away.

    MacDonald v. Sun Life Assurance Co. (2002 ONWSIAT 1488, Decision No. 755 02).

Peter Israel is the senior partner in the Toronto law firm of Israel Foulon LLP – Employment and Labour Lawyers. He can be reached at 416-640-1550 or pi@israelfoulon.com. The author would like to thank Rachel Hepburn Craig for her assistance with this article. A version of this article originally appeared in the Carswell publication, Canadian HR Reporter.

LEGAL DISCLAIMER: This article is for informational purposes only and is not intended to provide legal advice, which in all circumstances must be tailored to the specific facts of any problem. You should obtain a proper legal consultation in order to determine how this article applies to your specific situation.
Please feel free to contact Israel Foulon LLP to learn more at 416-640-1550.

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